FORT WORTH, Texas For more than three years, the nation's airlines have grappled with persistently high fuel costs. But they haven't seen prices quite like this.
Jet fuel prices reached $2.54 a gallon Friday, the highest price on record. The price spike was driven by the surge in crude oil prices, which topped $90 per barrel for the first time ever this week. Some energy analysts predict prices could rise even higher, perhaps topping $100 per barrel.
If they persist, executives and analysts say the high prices could seriously threaten the airline industry's fragile turnaround.
The airlines have greatly improved their fuel efficiency in recent years and used fare increases and hedging contracts to blunt the impact. But the high costs are impossible to entirely mitigate for an industry that burned nearly 20 billion gallons of fuel last year.
"These prices are very upsetting and worrisome," said George Hamlin, a longtime industry analyst with ACA Associates. "The industry is very concerned right now."
Executives at Fort Worth-based American Airlines said every penny increase in the price of jet fuel costs the carrier about $30 million annually. During the third quarter, the airline spent more than $1.7 billion on fuel. It was one of the few times in the airline's history that the fuel bill was higher than the cost of labor, which is traditionally its largest expense.
American is forecasting that fuel prices during the fourth quarter will be about 20 percent more than a year ago.
"High fuel prices are a big concern for the fourth quarter," said Tom Horton, American's chief financial officer, in a conference call with analysts last week. "Oil has been just extraordinary for this industry."
The good news, Hamlin said, is that the problem isn't new. Fuel prices have been steadily rising for several years, and the industry weathered spikes in cost after the beginning of the Iraq war and Hurricane Katrina.
Carriers have adapted by entering into fuel hedging contracts, making their airplanes more fuel efficient, cutting back on flights and raising fares.
"The industry made money (during the third quarter) at $80 per barrel," he said. "So they've learned a lot over the last few years."
American has 40 percent of its fuel purchases for the fourth quarter capped at $69 per barrel of crude oil prices. Southwest Airlines, based in Dallas, has 90 percent of its fuel locked at $51 per barrel for the quarter.
Southwest has long been the industry leader in fuel hedges, which is one reason it has remained profitable since Sept. 11, 2001 while its rivals lost billions.
Higher fares have also been a major part of the strategy to overcome fuel costs this year. Just Friday, Continental Airlines raised prices by $10 each way, and Delta Air Lines and United Airlines followed suit.
But fuel efficiency and higher fares can only go so far if prices continue to rise, Hamlin said. Eventually, higher prices will discourage leisure travelers from flying. And high energy prices could hurt the overall economy, which would likely mean a decrease in business travel.
"The impact on the general economy is what's so worrisome," he said.
Shares of AMR Corp., American's parent company, closed at $23.50, up six cents, in trading Friday.